2025 Outlook: Global Convertible Market

Eli Pars, CFA

Summary Points:

• For 2024, Calamos Global Convertible Fund posted a gain of 10.98%, outperforming the FTSE Global Convertible Index’s gain of 9.60%.
• Supported by a robust fourth quarter, global convertible issuance totaled $119 billion, and we expect the pace to remain strong in 2025 as companies seek to grow capital with lower borrowing costs.
• Investors are upbeat about a more business-friendly environment in the US (less regulation, lower taxes), but there’s still a lot that can sour the mood—geopolitical unknowns, tariffs, fewer rate cuts, and even how much the Trump 2.0 Administration will be able to get done with its thin Republican majority in Congress.
• We believe the case for global convertibles remains strong—we expect continued broadening of the equity market to benefit convertible issuers, many of whom are small and mid caps. Convertibles should also provide an attractive way to participate in upside and sidestep volatility.

The final quarter of 2024 saw a US presidential election that resulted in a clear-cut winner and, thus, a sigh of relief that propelled equities higher. However, stocks finished a few percentage points off their highs as investors took profits from another strong year in the equity markets.

In 2025, one of the wildcards is the newly created Department of Government Efficiency. Market expectations of actual savings seem to be low. Therefore, some early material successes may give investors the idea that the US economy may be able to grow faster than in prior decades. The United States’ best hope for getting out of its fiscal hole is sustained higher growth.

Issuance

New convertible issuance bounced back sharply in the fourth quarter, with $35.8 billion of new paper coming to market globally. This surge pushed full-year issuance to $119 billion, making it one of the top years of the past decade. Cryptocurrency companies were among the most powerful drivers of issuance in 2024, especially during the fourth quarter. The biggest of these by far is MicroStrategy (MSTR). MSTR’s $6.2 billion convertible issuance in 2024 may be the most ever by one company in a year. Its wave of new paper culminated with a $3 billion convertible issued in November.

Global Convertible Issuance: Healthy Year-to-Date Levels ($bil)

Source: ICE BofA Global Research. Data through December 31, 2024.

We are optimistic about convertible issuance as we head into 2025. Even now that the Fed has lowered interest rates, convertible securities should remain an attractive choice for issuers seeking to lower their borrowing costs, and we continue to see new convertibles come to market with attractive terms. The value proposition of issuing convertibles instead of straight debt remains compelling.

Positioning

Calamos Global Convertible Fund favors companies that offer a healthy measure of downside risk mitigation and upside equity exposure. The fund’s largest sector allocations include consumer discretionary (a significant overweight versus the FTSE Global Convertible Index), followed by information technology (a slight underweight). In terms of geographic exposures, the majority of the portfolio is invested in US issues, although the fund is underweight in the US versus the FTSE Global Convertible Index. Chinese companies are the second largest allocation and are modestly overweight. Our exposure to China reflects our enthusiasm for individual companies, including online retailers. The fund’s overall delta is similar to the global convertible market. On average, our portfolio has a slightly higher delta, but what we believe is a better risk/reward profile.

Closing Thoughts

Although global convertibles and equities provided plenty of upside in 2024, the year demonstrated that volatility isn’t going anywhere. Against this backdrop, the case for actively managed global convertibles remains strong. We believe our experienced and risk-managed approach will provide us with many advantages.